This week, markets navigated two competing narratives that will shape their positioning through to the year-end. Semi-conductor chip manufacturer Nvidia’s earnings have highlighted market concerns over artificial intelligence (AI) valuations, while United States (US) Federal Reserve (Fed) officials signalled December rate cuts are no longer assured. The volatile week began with technology stocks under pressure and the VIX (volatility index) climbing toward 25, its highest level since May. However, as the week progressed, futures rallied on stronger-than-expected chip demand but then spiralled as concerns resurfaced over stretched AI valuations. Adding to market uncertainty is the ongoing tussle within the Fed over US monetary policy. Let’s examine these two issues in more detail.
Nvidia surprises but the market not convinced
Nvidia reported third-quarter revenue of $57 billion after the markets closed on Wednesday, beating estimates of $54.9 billion, which was growth of 62% year-over-year. Profits reached $31.9 billion, up 65% from the previous year. Data centre revenue drove results, climbing 66% to $51.2 billion and exceeding analyst projections of $49.1 billion. The company expects revenue to grow to $65 billion for the fourth quarter against original expectations of $61.7 billion. Nvidia CEO, Jensen Huang, described Blackwell chip sales as “off the charts” during the earnings call.
Nvidia’s results provide evidence that enterprise spending on AI infrastructure remains robust despite stretched valuations. Hyperscalers (companies that operate massive data centres to provide cloud computing services to businesses) continue to increase their capital expenditures, validating the attitude that organisations view AI capabilities as strategically necessary rather than optional. However, gross margins came in slightly below expectations, prompting analysts to question rising input costs that could compress profitability if demand moderates.
Nvidia’s earnings, however, arrived when questions about AI valuations have intensified. Technology stocks had declined for four consecutive sessions heading into Wednesday, with the heavily tech-centred Nasdaq falling hardest among major indices. Investors had adopted a “risk-off” stance and dumped growth stocks, pushing defensive sectors (those that retain value despite market cycles) higher.
When Nvidia released its earnings report, options markets priced in a potential 7% move, in either direction, in Nvidia shares. This is roughly $320 billion in market value and highlights just how uncertain the market is around AI valuations. Nvidia accounts for approximately 8% of the S&P 500, meaning its performance directly affects nearly every portfolio with index exposure. Other tech giants including Meta, Microsoft, Amazon, and Alphabet also saw their stocks move up in after-hours trading based on Nvidia’s numbers, underscoring the chipmaker’s influence.
Nvidia’s stronger-than-expected guidance initially calmed investor nerves about AI spending, however, the dramatic market reversal during late trade on Thursday suggests the tech bubble debate is far from settled. While stocks opened sharply higher as the chipmaker’s results validated continued investment into AI, sentiment deteriorated throughout Thursday’s session. By the close, the Nasdaq had surrendered all early gains to finish down 2.15%, with AI-focused names experiencing pronounced declines of 3% to 11% despite robust fundamentals.
The afternoon selloff underscores a key tension: even as companies demonstrate genuine revenue growth from AI infrastructure. Markets remain deeply uncertain whether current valuations adequately reflect execution risks, rising input costs, and the timing of broader enterprise adoption. Questions about when AI investments will translate into measurable productivity gains continue to weigh on sentiment, particularly as the Fed signals a reduction in monetary accommodation in the near future.
A split Fed creates uncertainty of US monetary policy
While Nvidia results have muddied the water on AI-bubble fears, expectations for near-term monetary easing were reduced this week by Fed communications. The market-implied probability of a December rate cut fell from 95% a month ago to approximately 30% by week’s end according to the CME FedWatch tool. The shift followed both Fed Chair, Jerome Powell’s post-meeting comments and the subsequently released minutes from the October Federal Open Market Committee (FOMC) meeting.
At the 29 October meeting, the committee cut rates by 25 basis points to a range of 3.75% to 4.00%. Powell stated during his press conference that a further reduction in December was “not a foregone conclusion, far from it.” His language was notably stronger than market participants anticipated, given that two consecutive cuts typically establish momentum for continued easing.
However, the FOMC minutes, which were released Wednesday, revealed deeper divisions among policymakers than public statements suggested. The document showed “strongly differing views” over whether cooling labour conditions or persistent inflation pose greater risks. “Many participants” indicated no additional cuts would be appropriate for the rest of 2025, while “several participants” assessed that further easing could be warranted if conditions evolved as expected.
The split in the US monetary policy debate reflects genuine uncertainty about appropriate policy settings. Some officials believe current rates around 3.9% still restrict economic activity and risk pushing unemployment higher if maintained too long. Others argue that inflation remains too elevated at current levels, with particular concern that additional cuts could undermine credibility around the 2% target as affordability concerns persist.
The 43-day government shutdown that ended in mid-November complicated matters by creating an extended data blackout. September jobs figures were delayed until yesterday, and the October report has been cancelled entirely, with November data not arriving until 16 December. Powell described this as “driving in the fog,” though Fed Governor, Christopher Waller, pushed back on that characterisation, arguing sufficient private-sector data exists to inform decisions.
Regional Fed presidents have also expressed divergent views in recent speeches. Boston Fed President, Susan Collins, emphasised hearing “concerns about elevated prices” from business contacts and suggested holding rates steady would help contain inflation. Kansas City’s Jeffrey Schmid dissented at the October meeting in favour of no cut, arguing rate reductions could “cement higher inflation” more than they would support the labour market. In contrast, Atlanta’s Raphael Bostic is focused on risks to employment.
Market implications
The combination of strong AI infrastructure demand and uncertain US rate policy creates tension for equity positioning. Technology stocks may benefit from evidence that growth in AI continues despite investor concerns over an AI bubble, but higher-for-longer rates increase the discount rates (interest rates used to calculate present value) applied to future earnings, thereby reducing their value.
Bond markets have repriced, with yields rising as rate cut expectations decline. The US 10-year Treasury yield climbed through the week, putting pressure on duration-sensitive assets. Futures markets now price only modest additional US easing through 2026, a material shift from expectations earlier this quarter.
Fed watchers note December could see an unusually high number of dissenting votes regardless of the decision. Some estimate four or five dissents if the committee cuts, with three possible if rates hold. Four dissents would match the highest count since 1992 under Greenspan, signalling the breakdown of the consensus-driven approach Powell has maintained during his tenure.
The 9 to 10 December FOMC meeting arrives at a time when financial markets are demanding clarity that neither Nvidia’s earnings nor Fed communications have fully provided. Investors face year-end positioning decisions without resolution on whether AI valuations are justified or whether US monetary policy will provide support if growth disappoints.
A LOOK AT THE MARKETS
The week’s key themes:
- South African bond yields fall further as SARB cuts rates
- Nvidia celebrations short-lived on Wall Street
- Brent crude set for weekly decline after three straight days of losses
- Fading bets of Fed rate cuts in December bolster dollar
Bonds
US Treasury yields stabilised around 4.1% on Thursday, after delayed US employment data showed surprising strength. September payrolls jumped 119,000 – more than double the 50,000 forecast –while unemployment edged up to 4.4%. Wage growth slowed to 0.2%, its weakest quarterly pace, and weekly jobless claims fell to 220,000. Markets are now pricing in an only 36% chance of a 25-basispoint Fed cut next month. The absence of October’s employment report adds uncertainty to the central bank’s December decision.
United Kingdom (UK) gilt yields climbed to 4.6% – a five-week high – as UK budget uncertainty overshadowed growing rate-cut expectations. UK Prime Minister, Keir Starmer pledged no austerity measures as Chancellor of the Exchequer, Rachel Reeves, prepares her 26 November fiscal statement targeting lower living costs. Despite October’s softer headline inflation, UK food prices remain stubbornly elevated. Markets are now pricing an 84% chance of December easing.
German Bund yields held at 2.7%, posting their fifth consecutive weekly gain as strong Nvidia results boosted risk appetite. The European Commission upgraded Germany’s 2025 growth forecast to 0.2% from -0.2%, with 1.2% expansion expected through 2027. The European Central Bank (ECB) appears set to hold rates steady next year.
South African bonds rallied to 8.61% – near February 2021 lows – after the South African Reserve Bank (SARB) unanimously cut rates to 6.75%. The move follows the local Treasury’s backing of a 3% inflation target, giving policymakers room to support economic recovery.
Indices
US equity futures steadied this morning, after Thursday’s dramatic reversal. Strong Nvidia earnings sparked an early rally as AI optimism surged early Thursday, before sentiment soured by afternoon. The Dow closed 0.84% softer, the S&P 500 fell 1.56%, and the tech-heavy Nasdaq dropped 2.15%. Despite robust results, chip makers and AI-focused companies tumbled 3.2% to 10.9% as valuation concerns resurfaced. Better-than-expected September jobs data reinforced expectations the Fed will hold rates steady in December further driving risk-off sentiment.
UK stocks gained 0.4% Thursday, snapping a five-day losing streak. Energy and aerospace names led gains of 0.9% to 2.3%. Life-saving technology group, Halma, surged over 9% after raising guidance to mid-teens, with organic growth margins near 22%. Utilities, telecoms, and retailers lagged, with JD Sports falling nearly 3% on weak sales and lowered profit guidance.
European markets rallied sharply on Thursday as Nvidia earnings temporarily eased AI bubble fears. Datacentre infrastructure suppliers – including automation and semiconductor equipment makers – posted strong gains. Multinational financial services company, BNP Paribas, jumped on news of enhanced buybacks and a 13% capital ratio target by 2027. Innovative medicines company, Novartis, fell 2% despite raising cancer drug sales targets.
The JSE All Share hit a record 114,046 before the start of the week but closed at 111,897 yesterday as it was caught in the global tech selloff. Still, South African equities held up well relative to US tech’s steeper losses. The index is up 2.75% over the past month and 30.84% year-on-year.
Commodities
Gold slipped to around $4,060/ounce, heading for modest weekly losses as Fed rate-cut bets faded. September’s delayed US jobs report showed 119,000 new positions – well above the 50,000 forecast – validating the Fed’s view of cooling but stable labour markets. Unemployment rose to 4.4%, its highest level since October 2021, topping the 4.3% forecast. Wage growth came in at 3.8%, slightly above expectations.
Brent crude traded near $63/barrel after three straight sessions of losses, positioning for weekly declines. Ukrainian President Zelenskiy’s openness to peace talks sparked the selloff, with a US-Russian draft reportedly including territorial concessions and sanctions relief. This could flood markets with additional Russian oil, raising oversupply concerns. European diplomats remain sceptical any deal will materialise. Meanwhile, US sanctions on Russian energy companies, Rosneft and Lukoil, take effect today, potentially stranding 48 million barrels at sea. Indian refiners are seeking alternative supplies.
Currencies
The US Dollar Index is holding above 100, moving toward nearly 1% in weekly gains as December rate-cut odds evaporate. Fed Governor, Michael Barr, stressed caution on further easing, given that US inflation remains above target. The greenback strengthened against all major currencies, gaining most against the Japanese yen, New Zealand dollar and Australian dollar.
The euro fell to $1.15/€ – a two-week low – as traders scaled back Fed cut expectations after October’s jobs report was cancelled and FOMC minutes showed policy division. The ECB looks set to hold rates through end-2026 with European Union inflation near 2%, steady growth, and record-low unemployment. Brussels upgraded eurozone 2025 growth to 1.3% from 0.9%, citing US export strength as firms stockpiled ahead of Trump-era tariffs. Growth is forecast at 1.2% in 2026, rising to 1.4% in 2027.
Sterling dropped to $1.305/£ – near seven-month lows – after UK October inflation eased to 3.6%, with services inflation cooling to 4.5% and core inflation to 3.4%. Chancellor Reeves’ 26 November budget will target lower household costs.
The rand stabilised near R17.20/$ after the SARB’s unanimous decision to cut rates to 6.75%, though the central bank warned of unsustainable rand strength. Authorities recently adopted a 3% inflation anchor, replacing the 25-year-old 3% to 6% band, while upgrading growth forecasts. The rand weakened from below R17.00/$ a week ago as global pressure and profit-taking weighs.
*Please note that all information is at the time of writing.
Key indicators:
USD/ZAR: 17.26
EUR/ZAR: 19.93
GBP/ZAR: 22.59
GOLD: $4,038
CRUDE: $62.42
Sources: Bloomberg, Investing.com, LSEG Workspace and Trading Economics.
Written by: Citadel Advisory Partner and Citadel Global Director, Bianca Botes.